For Holiday Spending, Consumers Will Use Cash and Debit

As consumers head to the malls and shopping strips this holiday season, more than half are expected to use cash or debit cards and only one out of three shoppers will break out credit cards to buy gifts, so reports an online survey of Litle & Co., a Lowell-Mass.-based payments processing company.

Ben Saren, vice president of marketing at Litle, said this trend might help credit unions market debit cards to members and attract new members as long as the card provides incentives.

For example, the $5.2 billion Randolph-Brooks Federal Credit Union in Live Oak, Texas, launched a clever marketing campaign that said, “RBFCU is planning to nickel and dime its members,” playing off the huge consumer uproar over rising debit card fees by big banks last fall. RBFCU launched a new debit card last October that offered to pay members 15 cents for every purchase through the end of the year.

Saren believes consumers are slightly more aware of the advantages of doing business locally, and that may mean consumers are more likely to use their debit or credit cards from their local credit unions or community banks.

“TARP is still not far behind in the memories of consumers, and I think it opens the opportunity for credits unions and community banks to promote their debit cards or credit cards as long as they offer consumers rewards, points or cash back,” Saren said.

Incentives also continue to drive credit card usage. According to Litle & Co.’s survey, nearly 50% all cardholders–including 73% of people with incomes more than $150,000–said their primary motivation for using their credit cards is to earn awards and miles.

While 60% of the survey respondents own a tablet or smartphone, only one in four have shopped and made purchases with their mobile devices, the survey found. However, of those who do, the bulls eye price point is $20 to $100, which accounted for 63% of those purchases.

Consumers apparently are not yet enamored with using their mobile devices at retailers’ point of sale. The survey found 71% of consumers have never used a merchant’s mobile device swipe service such as Square, Google Wallet or PayPal. What’s more, only 8.6% of shoppers with smartphones think mobile wallets are going to change the payment world, according to the survey.

“Consumers are carefully choosing between using credit or debit/cash, and it’s no wonder given the current economic climate,” said Saren. “They are making trade-offs between using their available funds rather than credit to defer payment but are evidently swayed by the chance to earn bonus awards and miles. Meanwhile, the number of shoppers transacting via their mobile devices is small and really calls into question the consumer appetite for mobile payments.”

What’s more, Saren said mobile payment or mobile wallet devices at retailers are not even close to being ubiquitous.

“Some people think [the ubiquity of] mobile payment is a year away, other say it’s 10 years away,” said Saren. “But it really is much easier to pull out the plastic. It’s a frictionless process. But I don’t think mobile payment is a frictionless process.”

“The states affected by Sandy account for 16% of all holiday spending,” said Richard Feinberg, a professor of consumer science and retailing at Purdue University. “And even a small decrease in their spending will have a large impact on national numbers.”

Feinberg had been projecting a 4% increase in holiday retail sales compared to a year ago. Now he expects the increase to be between 2% and 3%. The National Retail Federation also forecast that holiday spending would increase by 4% over 2011, based on a NRF consumer survey. But that survey was taken in early October weeks before Hurricane Sandy slammed and devastated the highly populated tri-state area of New York, New Jersey and Connecticut.

“Even if things returned to normal before Thanksgiving, optimism and consumer confidence are likely to be lower, affecting spending on gifts,” Feinberg said. “Consumers will be suffering from what we might call post-Sandy traumatic stress, which will lower their inclination to spend.”